A spectre is haunting Ethereum Miners – the spectre of Casper, an update to the Ethereum blockchain. By changing the consensus algorithm from Proof-of-Work to Proof-of-Stake, it is going to make mining obsolete. But let’s start at the beginning.

Introduction

Mining Ethereum is a hard job, and it has to be. If anyone could just create Ether out of thin air, for free, its value would rightfully drop to zero. For Ether to keep its value, the supply needs to be limited. To see what happens when there is no such limit, just look at the country of Zimbabwe, which had to issue a 100 trillion Dollar banknote after its government had started to excessively print money in order to pay its bills.

Solid as a rock – the Zimbabwean Dollar.

Ethereum utilizes the so-called Proof-of-Work or PoW method to find consensus among all its users and to ensure its supply does stay limited. The idea behind PoW is simple – any user of a service or good needs to do some work before he can participate. Mining gold is good example; the fact that a lot of hard work is required to obtain even just an ounce of gold makes it valuable.

Cryptocurrencies like Ethereum also rely on this system, but instead of swinging a pickaxe and pushing a lorry, you need to do complex math by solving so called hash puzzles. This process is also called mining. But mining does not only create new Ether, it also fundamentally enables the Ethereum ecosystem to function correctly.

As you might know, the blockchain acts like a ledger to all transactions. The state of the leger determines the state of the network. If the ledger says a wallet has funds in it, it does. If the ledger says Alice sent Bob some Ether, she effectively did. If someone had control over the ledger, he could therefore also conduct malicious transactions, for example sending all funds to himself.

To ensure this doesn’t happen, transactions in the Ethereum network need to be attached to the found solution (also called proof) for each newly solved mathematical puzzle in order to be processed. This combination of transactions and the proof is called block. Each newly solved block is also mathematically dependent on the previous one, thus creating the famous blockchain. If all mining activity suddenly ceased, you would be unable to send or receive funds – there would be no proof to attach the transactions to and the sent transactions would never get verified.

In the current system, the vote for the right to verify transactions is ultimately won by the party with the most processing power. As the majority of miners has interest in the system working correctly, they can therefore in the long term cut off anyone trying to conduct malicious transactions.

As mentioned before, mining is expensive. Besides for computing power, you also need to pay for physical storage and the electricity to power the computers. Currently, the Ethereum blockchain requires an estimated 17.6TWh of electrical energy annually. Which maybe doesn’t sound like much, until you realize that’s half of New Zealand’s annual electricity consumption. You don’t need a degree in either math or environmental sciences to know that this poses a problem.

Proof of Stake and the Casper Update

The calls for Ethereum to switch from Proof-of-Work to a less wasteful alternative of finding consensus have steadily increased over the last years and resulted in the so called “Casper” update. Casper is ultimately going to make Ethereum mining obsolete by switching Ethereum’s consensus algorithm from Proof-of-Work to a method called Proof-of-Stake, or PoS. This change will gradually be phased in, with the first update coming some time in 2018, making one percent of all transactions rely on Proof-of-Stake.

Proof-of-Stake suggests that the person with the highest stake in an investment also has the highest interest in the investment retaining its value. In the new system, transactions still need to be processed. But instead of attaching transactions to solved hash puzzles, there will be a new entity called a “validator”.

A validator takes the role of the miner in processing the transactions. Unlike in the PoW-based system where everyone with a computer could participate in the mining process, in order to participate in the new system, to-be-validators need to post a large stake of Ether in order to process transactions. They then essentially have to place bets on the correct block to validate.

If they bet on a block that has been tampered with, the new system results in the malicious actor losing his stake. This change makes 51% attacks far more expensive. Currently, a malicious attacker with over 50% of all the processing power within the network could attempt taking over the Ethereum blockchain without risking any tangible assets – in case the attack fails, he can just go back to using his processing power to verify correct transactions.

The exact details are still unknown, but supposedly a small number of validators (below 1000) is going to post stakes and then jointly vote on the next block. The size of the stakes will be very large, with Ethereum’s founder Vitalik Buterin hinting towards a minimum amount upwards of 1000ETH. As the stakes are high (cue a gong sound in an 1800s style western setting), attacks under PoS would be very expensive.

Effects on the Industry

As it must make economic sense for validators to post their money, the annual return on the staked capital is very likely between three and ten percent in order to be a viable alternative to traditional FIAT investments. This return would come from transactions fees, which would still be much cheaper than they currently are under Proof-of-Work. But with the proposed stakes of upwards 1000ETH sharply contrasting with the lesser contents of an average wallet, this change might lead to more centralization.

Many miners currently bundle their processing power in so-called pools, which enable even people with just one graphics card in their home computer to mine efficiently and obtain regular payouts.

The switch to PoS would massively complicate pooling, as right now the investment in form of mining hardware usually is physically still in control of each individual miner. While a pool owner might be able to steal the payout once, the monetary risk for the individual miner is relatively low. Possible Stake-Pools for Ethereum require massively more trust. Here, in case of a malicious pool owner, all staked funds would be lost.

But when only actors with currently upwards of 1000 Ether in stakes or massive amounts of public trust can take part in the validation process, the average user might be left out and Ethereum could end up being controlled by banks and similarly well-funded or trusted institutions. Karl Marx would probably turn in his grave if he had to witness the goods of production being taken away from the workers and put in the hands of the wealthy. On the other hand, Karl also never had to worry about global warming and excessive energy consumption.

Conclusion

Casper is approaching quickly and both miners and investors need to pay attention closely. The update is highly debated and it should be. While the massive savings in energy and supposed improvements in speed and safety are certainly positive, the possible centralization and shift from participating in a democratic network to being subjected to the vote of a few wealthy stakeholders is certainly worrying.

I had a pretty busy week - the downside of adulting. So I missed one very crucial detail when I launched RaiBlocks Classic last week - EtherDelta is a mess and not working correctly at all. I thought it was just a temporary problem but it is very likely due to them changing ownership rather recently and seems to have been going on for quite a while.

So, per suggestion, please use ForkDelta for trading XRBC. It works just as intended and there are already some transactions going on.

If you are unsure about using ForkDelta, please read this tutorial. I recommend using the MetaMask Wallet for easy trading, but do just as you please.

I am putting in another 30$ to get some trading going on the exchange - if you have not used EtherDelta/ForkDelta so far and want to learn a bit about using decentralized exchanges, MetaMask and dApps, I highly recommend spending a dollar or two while playing with it - but again, this is all purely for fun.

Another week, another dollar (lost). 40 days have passed since I started and my portfolio. On pretty much exactly half these days the portfolios value was less then 50% of its original value and I was in the green for exactly one out of these 40 days - the first day. If friends or colleagues ask you about crypto, just show them this blog - if they can stomach these kind of losses, they should do fine.

One thing I just have to talk about is Bitcoin. On January 13th (the day I started this blog), Bitcoin was trading for around 13,800$. This morning, it was at 11500$. If I had put the original 837$ in Bitcoin (instead of spreading it over 66 different currencies), I would now have 697,50$ - instead of 388.58$. Obviously many altcoins depend on Bitcoin as the main trading pair - but it's extremly interesting to see that even over 40 days BTC vastly outperforms a portfolio that is spread as far as mine. On the other hand, there is a very similiar blog to mine (in theory...) called Buyandhold100crypto.com. This person started his experiment on December 7th and bought 100 different coins. On december 7th, Bitcoin opened at - 13500$. But while I am posting more then 50% losses, he is rocking a profit of 117%. (If you have a "friend" or coworker you hate, just tell him about that blog.) I guess its not much news to any seasoned investor, but BTC is "solid as a rock" (in the crypto sense) both ways.

Biggest Gainers:

1.Ethereum Classic [-6.92%]

2.Litecoin [-13.59%]

3.Lisk [-20.96%]

4.Syscoin [-25.52%]

5.Monero [-26.20%]

Biggest Losers:

62. Ardor [-76.03%]

63. BitMark [-75.38%]

64. NeosCoin [-73.31%]

65. LBRY Credits [72.40%]

66.Pascal Coin [72.13%

Just looking at the 1y-charts (and disregarding the tech) for Ethereum Classic and Syscoin, both seemvery interesting. What are the coins you are eyeing?

Almost 100 people have signed up for the ICO so far and it is time to airdrop the funds! I had some slight difficulties with the drop, but most people should have gotten their funds so far - you can check the transactions here, or you can - well - simply check your wallet.

I paid around 5$ for all the transactions, on average 5cts/tx.

So, the next step is getting the token listed on an exchange - and it is! Go buy some one EtherDelta!

The easiest way to get a token "up" and trading is getting it listed on EtherDelta. It's a decentralized exchange that let's you buy and sell any token without a listing fee.

I reached out to various non-decentralized exchanges and usually their listing fees vary from 9000$ up to 80.000$. Even the cheapest exchanges have fees of at least 1 BTC to get listed. For a classic ICO that is not much - for this project it is. Now we only have to get the price on EtherDelta high enough to finance that...beeing optimistic was never a problem for me I guess.

If you are in on the fun an can spare 5$ (hey, I could...) get on EtherDelta and buy and trade some RaiBlocks Classic. Once we have a bit of trading going on, we can pump the price together to get into the coinmarketcap largest gainers list - and from there obviously to the moon.

If you didn't recieve any XRBC although you signed up, just leave a comment below this post and I am going to resend the funds.

Sorry it took so long since the last update but t'was carnival season in Germany and I had some Beercoin to spend. Anyways, things are lighting up and the portfolio is almost back up over the 50% mark. Over the last week there were several incidents in the cryptoworld which overall influenced the portfolios' worth by a surprisingly small margin. The BitGrail exchange pretty much went bancrupt, but as I don't hold any Nano or BTC, the impact was marginal. There also was a very positive senate hearing in the U.S. about cryptocurrencies but again - nothing too special. Overall there seems to be a small but steady positive trend - let's see where this goes.

My biggest gainer overall was Lisk (LSK), my worst performing asset is NeosCoin. Lisk went up 3.42% since the beginning and is the only coin in the green, Neoscoin has lost 72.16%.

On a sidenote, today I overheard some pensioners talk about Bitcoin at a bakery. They didn't know much about its technical nature but were certainly interested in the reasons for the strong increases and decreases in value within days. When I asked them whether they would invest or not, their opinions differed quite a bit. One had lost a considerable chunk of money in the dotcom bubble and swore to never touch anything internet related on the stock market again. Some just didn't consider investing in stocks or crypto at all. And a single elderly man said he thought it was certainly interesting but he would wait until it got more mainstream and he could understand the concept. What to take from that conversation? I honestly don't know, but it's certainly fascinating that even pensioners are taking interest.

(I'll write about the RaiBlocks Classic ICO and some of the responses I got from exchanges later today.)

In 2012, I sold crypto on a crappy little exchange website I built, that didn't even have SSL. It was a 48h-hackjob after I realized people wanted to buy certain currencies, but had no place to do so with EUR. I created a couple of posts about it on the relevant forums and I started selling. People were suspicious at the beginning, but I always delivered within 10 minutes and the orders grew bigger. About two weeks after the website had been established, the first customer bought from me for over 1000$. He had never actually met me, was from Canada and the only thing he had was a picture of my loaded wallet with a piece of paper with the name of the site next to it. He wired the money and I sent the funds. Why am I telling you this?

Greed is incredibly powerful. Would you send 1000$ to an anonymous person, with your decision based on nothing but a promise?

This week, something happened that has happened countless of times since then. An exchange turns out to be shit, casually loses a couple hundred million dollars worth of crypto, and AGAIN, hundreds, if not thousands of people whine about loosing money. But in my opinion, if you had money on BitGrail (and are now sorry that it is gone) it's your own fault and your own fault only. There is no one to blame but yourself.

The funds I use for this project are actually stored on an exchange. But the funds I used for this project are also money I consider expendable and the work to transfer every single currency to cold storage or a dedicated wallet is just not worth my time. I am fully prepared to lose all of it and if that day comes, I will shrug, say "Tja" and carry on. The funds I own and I actually care about are all stored in cold wallets and unless some fundamental flaw in a certain hash function is found, I'll be fine.

Many people have (vastly) upwards of 1000$ in crypto. A paper wallet goes for 5cts and 15 minutes of work. Or are you a day trader and need to accesss the wallet on a regular basis? Then get a hardware wallet, there are enough well established companies like Ledger and Trezor out there. A hardware wallet goes for around 100$ on average and it won't get much more comfortable, especially as many exchanges actually specifially support these devices.

Pretty much every concern people have about cold storage is easily dispelled. Afraid your apartment will burn down and you could lose access? Make a copy and store it at your parents house. Afraid your nosey flatmate might find the wallet and make copies? Encrypt the keys before storing them or just change the third letter of the private key to another value. Very easy to remember, impossible to crack.

And this is already pretty high-level stuff. The amount of people not using 2FA? Probably more then 50% of all users and rising.

Over the last weeks, I have tried to figure out if I should feel sorry for people that have lost funds, whether it be on shitcoins, scams like Bitconnect, hacks or simply negligence. And I have come to my conclusion - No. No, I don't feel sorry for anyone that has lost money since MtGox. At this point, the only reasons people are still losing money are greed, stupidity and lazyness. We laugh about our parents writing their PINs on their Iphones and debit cards but fail to recognize our own shortcomings.